What Car Q&A: February 3 2009 - GAP Insurance

Should I get GAP insurance?Is GAP insurance only useful if buying a car on finance? I'm about to buy a brand new car, and when chatting about finance the salesman mentioned that it would be worth taking out GAP insurance for an extra £300. I've now decided to pay the full amount up front, but wondered if it's still worth forking out for GAP insurance. Alison Whitley

GAP (Guaranteed Asset Protection) insurance is more relevant to car buyers paying on finance, but it's still worth thinking about if you're buying outright.

If you buy a car using a hire purchase (HP) or a personal contract purchase (PCP) agreement and it is subsequently written off or stolen, your insurer will probably pay out only the current market value. The amount could be several thousand pounds less than the amount you owe the finance company – especially if the car has poor resale values.

Standard GAP insurance covers the shortfall shortfall between what you owe and what the car's worth and means you're not left without a car while still owing money to the finance company.

Cash buyers can take out a different type of GAP insurance – either 'back to invoice' or 'vehicle replacement'.

'Back to invoice' cover pays the difference between your motor insurance settlement figure and the amount you paid for the car - the original invoice price.

However, this type of GAP insurance is usually available only for the first 12 months of ownership, but can be extended up to three years with some policies.

'Vehicle replacement' cover is self-explanatory. If your car is written off or stolen, any discrepancy between the amount paid out by your motor insurer, and the cost of a replacement car of the same age and mileage, will be covered by this type of GAP insurance policy.

Taking out this of cover is less worthwhile, though, because most fully comprehensive motor policies should cover the cost of an equivalent replacement car.

If you go ahead with GAP insurance cover, be sure to shop around. You don't have to buy from the dealer. Try click4gap.co.uk or ala.co.uk.